[Federal Register Volume 62, Number 240 (Monday, December 15, 1997)]
[Notices]
[Pages 65721-65725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32651]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22930/812-10836]
MLX Corporation; Notice of Application
December 9, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under sections 6(c) and 6(e)
of the Investment Company Act of 1940 (the ``Act'').
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SUMMARY OF APPLICATION: Applicant requests an order under sections 6(c)
and 6(e) of the Act that would exempt it from all of the provisions of
the Act except sections 9, 17(a) (modified as discussed in the
application), 17(d) (modified as discussed in the application), 17(e),
17(f) (modified as discussed in the application), and 36 through 53 and
the rules and regulations under the Act until the earlier of the date
of the pending merger of applicant with Morton Metalcraft Holding Co.,
or June 30, 1998.
FILING DATE: The application was filed on October 27, 1997 and amended
on December 3, 1997. Applicant has agreed to file an additional
amendment, the substance of which is incorporated in this notice,
during the notice period.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving applicant with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m., on
December 29, 1997, and should be accompanied by proof of service on
applicant, in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
who wish to be notified of a hearing may request notification by
writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
MLX Corporation, 1000 Center Place, Norcross, Georgia 30093.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Nadya B. Roytblat,
Assistant Director, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicant's Representation
1. MLX Corporation (``MLX'') was formed in 1984 as part of the
reorganization of McLouth Steel Company (``McLouth''), a maker of steel
products that filed for bankruptcy in 1982. Under the terms of the
organization, McLouth was renamed ``MLX Corporation'' and McLouth
shares were exchanged for new MLX shares. As part of the
reorganization, McLouth's operating business was sold to a separate
entity. MLX's sole remaining asset is the net operating losses
generated by McLouth's unprofitable operations. These net operating
losses are still available to offset future taxable income from
operations and are one of MLX's most important assets. MLX has
approximately 8,500 shareholders.
2. In 1985, MLX acquired S.K. Wellman Limited, Inc. (``Wellman''),
a company engaged in the design and manufacture of high energy friction
materials used primarily in aircraft brakes and heavy equipment brakes,
transmissions, and clutches (the ``Wellman Business''). From 1985
through 1987, MLX consummated various other acquisitions that
complemented the Wellman Business (the ``Wellman Acquisitions''). In
addition to the Wellman Acquisitions, in 1986, 1987, and 1988, MLX
acquired
[[Page 65722]]
the companies and assets comprising Pameco Corporation (``Pameco''), a
distributor of heating and air conditioning units. In 1992, MLX sold
Pameco, which enabled MLX to focus its efforts exclusively on the
Wellman Business.
3. In August 1994, a foreign competitor approached MLX management
with an unsolicited expression of interest in a business combination
with Wellman. This led to negotiations for the sale of all the capital
stock of its wholly-owned subsidiary, Wellman (the ``Wellman
Transaction''). The Wellman Transaction, which closed June 30, 1995,
left MLX with approximately $38 million in cash and cash equivalents,
no debt, and federal net operating loss carryforwards (``NOLs'') of
approximately $300 million available to offset future taxable income
from operations.
4. Since the Wellman Transaction, MLX has been engaged in the
process of identifying and evaluating potential acquisition candidates
for the purpose of acquiring a suitable operating business as soon as
reasonably possible. MLX's president and chief executive officer, the
only officer and one of only two employees, spends substantially all of
his time seeking acquisition candidates for MLX. In addition, MLX's
other employee spends substantially all of her time supporting the
activities of MLX's president and attending to the ministerial
functions of operating the company. MLX has developed financial and
operational criteria as a basis for evaluating prospective target
businesses and for narrowing the focus of its search. MLX's executive
officers and board of directors have been in constant communications
with professional groups, including investment bankers, lenders,
attorneys and accountants (collectively ``Financial Intermediaries'')
for the purposes of discussing MLX's acquisition criteria and exploring
acquisition opportunities. MLX has discussed its acquisition criteria
directly with over fifty Financial Intermediaries. Three Cities
Research, Inc. (``Three Cities''), a New York investment banking firm
that owns approximately 39% of MLX's outstanding common stock, has
assisted MLX in identifying, evaluating and negotiating potential
acquisitions. In addition, MLX has engaged, on a non-exclusive basis,
the investment banking firm of Smith Barney to canvas the market of
businesses for sale and analyze these against MLX's acquisition
criteria.
5. On May 19, 1997, MLX was granted an order (the ``Existing
Order'') exempting it from most of the provisions of the Act during the
period from the date of the Existing Order to December 31, 1997.\1\
However, in spite of its efforts, MLX has been unable to complete the
acquisition of an operating business. MLX has recently signed a
definitive merger agreement (the ``Pending Merger'') with Morton
Metalcraft Holding Co. (``Morton''), a leading contract manufacturer
and supplier of high quality fabricated sheet metal components and sub-
assemblies for construction, agricultural, and industrial equipment
manufacturers. Preliminary proxy materials seeking shareholder approval
for the Pending Merger were filed with the SEC on October 21, 1997.
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\1\ Investment Company Act Release Nos. 22626 (Apr. 21, 1997)
(notice) and 22667 (May 19, 1997) (order).
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6. MLX currently has NOLs of approximately $275 million available
to offset future taxable income from operations. In order for MLX to
retain its NOLs after the Pending Merger, section 382 of the Internal
Revenue Code of 1986, as amended (``Section 382'') requires existing
MLX shareholders to own 50% or more of the equity in MLX after the
Pending Merger. However, William D. Morton (``Mr. Morton''), President
and Chief Executive Officer of Morton, stated that he would only
consider a transaction which he would obtain voting control of the
entity resulting from the Pending Merger. In order to give Mr. Morton
effective voting control of MLX after the Pending Merger (i) MLX is
proposing that its shareholders approve a recapitalization that will be
structured to avoid an ownership change within the meaning of Section
382 (the ``Recapitalization'') and (ii) the transactions associated
with the Pending Merger, which includes a shareholders agreement and a
voting agreement, must be consummated (the ``Related Transactions'').
7. Under the Recapitalization, all existing common stock of MLX
will be re-classified as MLX Class A Common Stock (``Class A Common
Stock'') and a new class of 200,000 Shares of MLX Class B Common Stock
(``Class B Common Stock'') will be created. Certain affiliates of Three
Cities (``TCR Affiliates'') will own 100,000 shares of Class B Common
Stock. Class A Common Stock and Class B Common Stock will have equal
rights with respect to dividends and liquidation participation.\2\
Shareholders of Class A Common Stock and Class B Common Stock will vote
as a single class on all matters with each share of Class A Common
Stock entitled to one vote and each share of Class B Common Stock
entitled to one vote per share and increasing votes per share as the
shareholder disposes of certain shares \3\ of Class A Common Stock.
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\2\ Each share of Class B Common Stock will be convertible, at
the option of its holder, into one share of Class A Common Stock.
Each share of Class B Common Stock will automatically convert into
one share of Class A Common Stock (i) upon its sale or transfer to a
party unaffiliated with Mr. Morton or the TCR Affiliates and (ii) on
the tenth anniversary of the effective date of the Pending Merger.
\3\ Mr. Morton's voting power will also be increased by 338,990
shares of Class A Common Stock that are not taken into account in
calculating the voting power of his Class B Common Stock.
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8. Following the Pending Merger, Mr. Morton will own 1,218,990
shares of Class A Common Stock and 100,000 shares of Class B Common
Stock. TCR Affiliates will own 888,178 shares of Class A Common Stock
and 100,000 shares of Class B Common Stock. As Mr. Morton and TCR
Affiliates sell their shares of Class A Common Stock, the special
voting rights of the Class B Common Stock will ensure that Mr. Morton's
voting rights and the TCR Affiliates' voting rights will not be reduced
below 24%. Thus, after the Recapitalization and Pending Merger, Mr.
Morton and the TCR Affiliates together will have 56.5% of the voting
rights of MLX common shares.
9. In connection with the Pending Merger, Mr. Morton and TCR
Affiliates entered into a shareholders agreement (the ``Shareholders
Agreement'') whereby the benefits of the potential voting rights of
Class B Common Stock enure entirely to Mr. Morton. Under the terms of
the Shareholders Agreement, TCR Affiliates will grant Mr. Morton a
proxy to vote all of the Class A Common Stock and the Class B Common
Stock owned by TCR Affiliates. The proxy will cover all matters to be
voted upon by MLX's shareholders after the Pending Merger except for
the liquidation of MLX, and sale of MLX's assets, and certain
mergers.\4\
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\4\ In another Related Transaction, MLX has entered into a
securities purchase agreement with certain holders of Morton common
stock, options, and warrants whereby MLX will purchase shares of
Morton common stock, options, and warrants. The Morton securities
purchased by MLX will be cancelled by the Pending Merger.
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10. In connection with the Pending Merger, TCR Affiliates and
Morton have also entered into a voting agreement (the ``Voting
Agreement'') under which TCR Affiliates have agreed that at any meeting
of the MLX shareholders, TCR Affiliates will vote all the shares of MLX
common stock owned by them in favor of (i) the Recapitalization, (ii)
the Pending Merger, and (iii) a new employee stock option plan and each
of the other actions contemplated by or
[[Page 65723]]
required in furtherance of such transactions.
11. Until the Pending Merger, a substantial majority of the
potential acquisitions were rejected by MLX because of valuation
issues. In other instances, MLX was outbid for the target. As of
September 30, 1997, MLX had evaluated 225 transactions and made thirty-
one offers or valuation proposals. If for any reason, the Pending
Merger is not consummated, MLX plans to continue to be engaged in the
process of identifying and evaluating potential acquisition candidates
for the purpose of acquiring a suitable operating business as soon as
reasonably possible.
12. MLX states that there is no assurance that the Pending Merger
will be completed, if at all, by December 31, 1997. Accordingly, it is
necessary for MLX to seek a new order extending the time period of the
Existing Order. MLX requests an order under sections 6(c) and 6(e) of
the Act exempting it from all the provisions of the Act except sections
9, 17(a) (modified as discussed in the application), 17(d) (modified as
discussed in the application), 17(e), 17(f) (modified as discussed in
the application), and 36 through 53 and the rules and regulations under
the Act until the earlier of the date of the Pending Merger or June 30,
1998. MLX also requests a limited and specific exemption for the same
time period (i) under section 6(c) for an exemption from section 17(f)
to permit MLX to continue its present custodial arrangement, (ii) under
rule 17d-1 to grant an exemption from section 17(d) to permit MLX to
maintain, operate and comply with its stock option plans and
agreements, and (iii) under section 17(b) and rule 17d-1 for an
exemption from section 17(a) and section 17(d), respectively, to permit
MLX and TCR Affiliates to consummate the Pending Merger and Related
Transactions.
13. MLX's NOLs represent substantial value that may only be
maximized by acquiring a profitable operating company at a fair price.
The NOLs expire as follows: $144.3 million in 1997; $1.2 million in
1998; $73.8 million in 1999; $2.7 million in 2000; $2.2 million in
2002; $5.0 million in 2005; $2.0 million in 2006 and $47.3 million in
2007. The existence of the NOLs, together with their expiration
schedule, provide MLX with a strong incentive to close the acquisition
of a profitable operating business as soon as possible. Though
currently in transition, MLX expects to have acquired an operating
business by no later than June 30, 1998 or sooner if the Pending Merger
is completed. In the event that MLX is unable to acquire an operating
business by June 30, 1998, MLX's board of directors will consider the
alternatives available, including registration as an investment company
or dissolution. These alternatives would be considered in advance of
June 30, 1998 in order to allow sufficient time for the implementation
of any board decision.
14. Since the Wellman Transaction, MLX's revenues have been derived
from the investment of substantially all of its assets in overnight
repurchase agreements collateralized by United States Treasury and
agency securities. MLX's overnight repurchase agreement investment
program (the ``Program'') is administered by five large national banks
approved by MLX's board of directors. The Program is designed to: (a)
Maximize safety of capital, (b) assure availability of funds for the
purpose of consummating an acquisition, and (c) relieve MLX management
of the time-consuming management of those funds.
15. Access to MLX's funds is severely restricted. MLX has one
operating account for the purpose of executing routine operating
disbursements and business expenses, including salaries, rent and
taxes. The maximum amount of funds deposited in the account is limited
to no more than the anticipated expense level for the upcoming two
months, based on MLX's budget as approved by the board of directors.
Any disbursements from the operating account must be approved by the
chief executive officer and the account is reconciled on a monthly
basis. In addition, MLX's board of directors receives a monthly summary
report of expenses.
16. Five national banks invest the remainder of MLX's funds as part
of the Program, each of which is responsible for approximately equal
portions of $7 million. MLX's board of directors has designated First
Union National Bank as the primary bank. The non-primary banks are
Wachovia Bank of Georgia, National Bank, SunTrust Bank, and National
Bank of Detroit. All five banks are United States regulated banks and
meet the qualifications prescribed in section 26(a)(1) of the Act. The
non-primary banks have been instructed in writing to wire money only to
MLX's account at First Union National Bank and not to any other person
or entity. In addition, MLX's agreements with all of the banks (``Bank
Agreements'') contain provisions requiring the banks to segregate and
identify all securities owned by MLX as subject to the respective Bank
Agreement.
17. Transfers from any non-primary bank investment account in any
amount must be approved by an MLX executive officer and the Funds
Management Committee of the board of directors, and primary account
transfers (including check disbursements) in amounts above $5,000 must
be approved by an MLX executive officer and a member of the Committee.
In addition, the bank must verify the authenticity of the wire transfer
request by voice verification with a second, non-initiating MLX officer
in a phone call initiated by the bank. MLX also has secured an
executive protection policy from the Chubb Group of Insurance Companies
insuring MLX for, among other things, losses of money, securities and
other property caused by theft or forgery by any employee or agent of
MLX or by any other person in an amount not to exceed $5 million.
18. MLX has two stock option plans. Under the MLX Corporation Stock
Option Plan, adopted in 1985 (the ``1985 Plan''), MLX granted stock
options to certain officers, directors and key employees at prices not
less than the market value on the date the options were granted. No new
options may be granted under the 1985 Plan, although some options are
still outstanding. Under the MLX Corporation Stock Option and Incentive
Award Plan, adopted in 1995 (the ``1995 Plan''), stock-based awards may
be issued to key employees (including directors who are also employees)
and certain others. The awards may include incentive stock options,
non-qualified stock options, restricted stock, and outright stock
awards. A total of 125,000 shares of MLX common stock are reserved
under the 1995 Plan. In addition, on February 11, 1991, MLX issued
options to Brian R. Esher, its then Chief Executive Officer and
currently a director of MLX, to acquire 190,400 shares of MLX common
stock at a price of $5.00 per share, exercisable (subject to vesting
schedules which have been satisfied) at any time prior to February 10,
1998. Mr. Esher's options were converted to stock appreciation rights
and exercised as of February 28, 1997. On October 3, 1993, December 29,
1994 and July 26, 1995, MLX issued options to Thomas Waggoner, its then
Chief Financial Officer and current Chief Executive Officer, to acquire
50,000 shares of MLX common stock at prices ranging from $2.20 to $9.25
per share, exercisable at any time prior to July 25, 2000. It is also
possible for Mr. Waggoner's options to be converted to stock
appreciation rights.
Applicant's Legal Analysis
1. Section 3(a)(3) of the Act defines an investment company as an
issuer who is engaged or proposes to engage in the business of
investing, reinvesting,
[[Page 65724]]
owning, holding, or trading in securities and owns investment
securities having a value in excess of 40% of the issuer's total assets
(excluding Government securities and cash). MLX believes it may be an
investment company under section 3(a)(1)(C). However, MLX contends
that, if the Pending Merger is consummated, MLX would not be deemed to
be an investment company under section 3(a)(1)(C) of the Act.
2. Rule 3a-2 under the Act generally provides that, for purposes of
section 3(a)(3), an issuer will not be deemed to be engaged in the
business of investing, reinvesting, owning, holding, or trading in
securities for a period not exceeding one year if the issuer has a bona
fide intent to be engaged in a noninvestment company business. For the
period from July 1, 1995 through June 30, 1996, MLX operated under the
exemption provided by rule 3a-2.
3. Section 6(c) provides that the SEC may conditionally or
unconditionally exempt any person, security or transaction, or any
class thereof, from any provision of the Act, or of any rule or
regulation, if and to the extent that an exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policies and
provisions of the Act. Section 6(e) permits the SEC to require
companies exempted from the registration requirements of the Act to
comply with certain specified provisions thereof as though the company
were a registered investment company.
4. MLX asserts that registration under the Act would involve
unnecessary burden and expense for MLX and its shareholders where there
is no likelihood of abuse. MLX believes that registration would require
costly changes in its financial reporting requirements, because the
requirements are significantly different for investment companies. MLX
contends that making these changes during this interim period, until it
consummates the acquisition of an operating business, is likely to
result in considerable and unwarranted confusion of its shareholders
and the investing public. MLX states that many shareholders, as a
result of this confusion, might sell their positions in MLX, an event
which might have an adverse effect on the market price of MLX's
securities and consequently on MLX's remaining shareholders. MLX
asserts that those shareholders also would be deprived of the benefits
of a potential acquisition.
5. MLX contends that certain provisions of the Act also might
impair its ability to carry out its stated intention to acquire an
operating business. For example, MLX believes that (a) the shareholder
approval requirement of section 13(a)(4) of the Act would be a
significant obstacle to effecting any acquisition requiring rapid
action, (b) the cross-ownership prohibition of section 20(c) of the Act
would limit MLX's ability to attempt a takeover which was not favored
by the target sought to be acquired, and (c) the debt limitations of
section 18 of the Act might preclude bridge financing of an
acquisition. Also, MLX asserts that, if MLX is unable to obtain
shareholder approval for the Pending Merger and complete it prior to
December 31, 1997, failure to obtain the requested order may prevent
MLX from completing the Pending Merger after December 31, 1997.
6. MLX states that it is a reporting company under the Securities
Exchange Act of 1934 and is subject to extensive reporting and other
requirements for the protection of its shareholders. Further, MLX
asserts that its shareholders and the investing public have been
informed on numerous occasions of its intention to acquire an operating
business and the framework for its acquisition efforts. MLX also
asserts that it has pursued and remains committed to the acquisition of
a suitable operating business consistent with the best interests of its
shareholders.
7. MLX notes that, in determining whether to grant an exemption for
a transient investment company, the SEC considers these factors: (1)
Whether the failure of the company to become primarily engaged in a
non-investment company business within one year was due to factors
beyond its control; (2) whether the company's officers and employees
during that period tried, in good faith, to effect the company's
investment of its assets in a non-investment company business; and (3)
whether the company invested in securities solely to preserve the value
of its assets.
8. MLX states that, while it is using its best efforts, in good
faith, to acquire an operating business with the proceeds of the
Wellman Transaction, it has been unable, notwithstanding the Pending
Merger, to negotiate and complete a favorable transaction. MLX asserts
that this is attributable solely to factors beyond its control,
including the unavailability of suitable acquisition candidates and the
unwillingness of certain candidates to accept what MLX believed to be
reasonable offers. Moreover, MLX states that the purchase of a suitable
operating business of the size being pursued often requires a long
period of time. MLX contends that its ability to acquire an operating
business will depend upon the availability of suitable acquisition
candidates, the willingness of those candidates to accept MLX's offers
and the time needed to negotiate the terms of the acquisition and other
factors outside of its control.
9. MLX submits that management's efforts to invest its assets in a
non-investment company business are evident from the efforts of Three
Cities and the other Financial Intermediaries to provide assistance in
identifying acquisition candidates, which includes the Pending Merger,
and the fact that MLX's management spends substantially all of its time
on MLX's acquisition search and MLX's investments in overnight
repurchases agreements are made solely to maximize the safety of its
assets. MLX contends that its investments in overnight repurchase
agreements, motivated primarily by a desire to consummate an
acquisition and to preserve the value of capital pending consummation
of the acquisition, should not be subject to registration and
regulation under the Act.
10. Section 17(a) provides, in relevant part, that it is unlawful
for any affiliated person of a registered investment company or any
affiliated person of such person, acting as principal, knowingly to
sell any security or other property to such company or to purchase from
such company any security or other property. Section 17(b) of the Act
authorizes the SEC to issue an order of exemption from one or more of
the provisions of section 17(a) if evidence establishes that the terms
of the proposed transaction are reasonable and fair and do not involve
overreaching on the part of any person concerned, the proposed
transaction is consistent with the policy of each registered investment
company concerned, and the proposed transaction is consistent with the
general purposes of the Act. MLX believes that, because TCR Affiliates
are affiliates of Three Cities that own 39% of existing MLX shares, TCR
Affiliates may be deemed to be affiliated persons of MLX under section
2(a)(3) of the Act. Thus, MLX requests an exemption from the provisions
of section 17(a) to the extent necessary to permit the Pending Merger.
11. MLX states that TCR Affiliates, unlike other existing MLX
shareholders, will be receiving Class B Common Stock that permits TCR
Affiliates to retain a significant voting interest in MLX. However, MLX
contends that, despite the greater voting rights inherent in the Class
B Common Stock, TCR Affiliates have agreed under the Shareholders
[[Page 65725]]
Agreement to be subject to substantial detriment compared with all
other MLX shareholders. MLX asserts that the Pending Merger and Related
Transactions were designed to satisfy Mr. Morton's conditions regarding
control of MLX and to permit MLX to retain its major assets, the NOLs.
MLX also states that the Pending Merger and Related Transactions were
approved by MLX's board of directors, including MLX's disinterested
directors, and will not be effective unless approved by a vote of MLX's
shareholders. Further, MLX contends that TCR Affiliates are receiving
no additional equity or any fee as a result of the Pending Merger.
Finally, MLX asserts that the Pending Merger will permit MLX to acquire
a suitable operating business that will result in MLX no longer being
subject to the Act. Thus, MLX contends that the terms of the Pending
Merger are reasonable and fair and do not involve overreaching.
12. Section 17(d) and rule 17d-1 make it unlawful for any
affiliated person of a registered investment company, acting as
principal, to effect any transaction in which the company is a joint or
joint and several participant with the affiliated person unless the
transaction has been approved by order of the SEC. MLX requests an
exemption pursuant to section 17(d) and rule 17d-1 to the extent
necessary to permit MLX (i) to operate and comply with its stock option
plans and agreements and (ii) to consummate the Pending Merger and
Related Transactions.
13. MLX believes that compliance with section 17(d) of the Act and
the rules under the Act would prohibit operation of and compliance with
the 1985 Plan, the 1995 Plan, and Mr. Waggoner's Option Agreement. MLX
states that these options were granted as compensation to various
executive officers and key employees at different times prior to the
Wellman Transaction. MLX asserts that inability to realize the value of
those options would be unfair to the officers without the result being
necessary or appropriate in the public interest.
14. MLX believes that the participation of TCR Affiliates in the
Pending Merger and Related Transactions will be on a basis less
advantageous than that of other MLX shareholders. MLX contends that TCR
Affiliates will be giving up certain benefits retained by other MLX
shareholders in order to induce Morton to agree to the Pending Merger
and Related Transactions. MLX states that under the Shareholder
Agreement, TCR Affiliates will be transferring their voting rights to
Mr. Morton in order to give Mr. Morton voting control of MLX. In
addition, MLX asserts that the Shareholders Agreement contains severe
restrictions on TCR Affiliates' ability to transfer their shares.
Further, MLX asserts that under the Voting Agreement, TCR Affiliates
have agreed to vote their shares in MLX in favor of the Recaptalization
and Pending Merger. MLX states that for the reasons stated above under
section 17(a), MLX meets the standards of rule 17d-1. Thus, MLX
contends that no regulatory purpose would be served by prohibiting MLX
from consummating the Pending Merger and Related Transactions.
15. Section 17(f) provides that the securities and similar
investments of a registered management investment company must be
placed in the custody of a bank, a member of a national securities
exchange, or the company itself in accordance with SEC rules. MLX
states that all assets invested under the Program are in the custody of
qualified banks and the ability of the banks to transfer money in and
out is subject to numerous restrictions and checks and balances.
Furthermore, MLX states that those assets are insured up to $5 million,
an amount substantially in excess of what would be required under a
fidelity bond obtained under section 17(g) of the Act. MLX also states
that its custodial arrangements are consistent with the substantive
requirements of rule 17f-2 under the Act, except for paragraph (f)
thereof regarding the requirement for MLX's independent accountants to
conduct three actual examinations. MLX also submits that its financial
statements are audited annually by its independent accountants.
Applicant's Conditions
Applicant agrees that any order will be subject to the following
conditions:
1. During the period of time MLX is exempted from registration
under the Act, MLX will not purchase or otherwise acquire any
additional securities other than securities that are rated investment
grade or higher by a nationally recognized statistical rating
organization or, if unrated, deemed to be of comparable quality under
guidelines approved by MLX's board of directors, except that MLX may
make equity investments in issuers that are not investment companies,
as defined in section 3(a) of the Act (unless an issuer is covered by a
specific exclusion from the definition of investment company under
section 3(c) other than sections 3(c)(1) and 3(c)(7)), in the following
circumstances: (a) in connection with the consideration of the possible
acquisition of an operating business as evidenced by a resolution
approved by MLX's board of directors, and (b) in connection with the
acquisition of majority-owned subsidiaries.
2. MLX will allocate and utilize its accumulated cash and short-
term securities for the purpose of funding cash requirements for its
existing businesses or far acquiring one or more new businesses.
3. While any order is in effect, MLX's 10-K, 10-Q, and annual
reports to shareholders will state that an exemptive order has been
granted under sections 6(c) and 6(e) of the Act and that MLX and other
persons, in their transactions and relations with MLX, are subject to
sections 9, 17(a) (except as discussed in the application), 17(d)
(except as discussed in the application), 17(e), 17(f) (except as
discussed in the application), and 36 through 53 of the Act as if MLX
were a registered investment company.
4. MLX will obtain an amended order from the SEC prior to any
material modification of MLX's custodial arrangement in a manner not
described in the application.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32651 Filed 12-12-97; 8:45 am]
BILLING CODE 8010-01-M